In this chapter, Richard Lyal analyses the basics of the fiscal State aid rules applied in the EU, and the potential scope for tension between these rules and Member State sovereignty in tax matters. As the questions explored here are among the most relevant and hotly debated in academic literature as well as recent case law, the chapter starts with an excellent introduction to this provision. After detailing the four criteria to establish the existence of State aid in accordance with Article 107 TFEU with reference to the key judicial developments, the chapter delves into the doctrinal difficulties regarding fiscal State aid. The author clearly identifies the areas in need of further clarification such as the determination of the reference framework to establish selective advantages and the justification of differences under the rather vague concept of the ‘nature or general scheme of the tax system’. Beyond these uncertainties, the author identifies further important issues for future research such as the relationship between State aid law and Member States’ bilateral agreements as well as that between State aid law and national antiabuse provisions, and the distinction between individual aid and aid schemes.